4. Market equilibrium refers to a situation in which market price

Question

BlackTom AI · Accepted Answer

Market equilibrium occurs where quantity demanded equals quantity supplied, so the market price is at a level with neither a shortage nor a surplus.

1. Relevant knowledge points and concepts
- Demand curve: shows how much consumers want at each price (downward sloping).
- Supply curve: shows how much producers supply at each price (upward sloping).
- Equilibrium price and quantity: the price and quantity at the intersection of the supply and demand curves where Qd = Qs.
- Shortage (excess demand): when price < equilibrium, Qd > Qs.
- Surplus (excess supply): when price > equilibrium, Qs > Qd.
- Price adjustment: shortages put upward pressure on price; surpluses put downward pressure on price until equilibrium is restored.

2. Step-by-step reasoning
- Start with the market price P. Compare quantity demanded Qd(P) and quantity supplied Qs(P).
- If Qd(P) > Qs(P), there is a shortage; buyers compete, driving P up until Qd = Qs.
- If Qs(P) > Qd(P), there is a surplus; sellers lower P until Qd = Qs.
- The stable outcome is the price where Qd(P*) = Qs(P*). At that P*, there is neither shortage nor surplus.

3. Calculations
- No numeric calculation is required here; the condition is Qd = Qs at equilibrium. If numeric demand and supply functions were given, we would set them equal and solve for P and Q.

4. Why the correct answer is correct
- Option a precisely states the defining characteristic of market equilibrium: no shortage and no surplus because quantity demanded equals quantity supplied.

5. Why the other options are incorrect
- b. “High enough to allow firms to earn a fair profit” is normative and not part of the equilibrium definition; profits depend on costs and market structure.
- c. “Low enough for consumers to buy all that they want” misconstrues demand; consumers buy all they want only at prices where supply meets that demand—this could cause shortages if below equilibrium.
- d. “Just above the intersection” is wrong because equilibrium is at the intersection exactly, not above it (above would create a surplus).

6. Conclusion
The correct answer is a. This matches the provided answer: "a. is at a level where there is neither a shortage nor a surplus."

4. Market equilibrium refers to a situation in which market price单项选择题

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